HENDERSON VS. CIR

The spouses Arthur Henderson and Marie Henderson filed with BIR returns of annual net income for the years 1948-1952.  Henderson's received notice of assessment from BIR, subsequently, paid the assessment.  BIR reassessed the taxpayers income for the year 1948-1952 and demanded payment of the deficiency taxes.

In the assessments, BIR considered as part of their taxable income the taxpayers-husband allowances for rental, residential expenses, subsistence, water, electricity and telephone; bonus paid to him; withholding tax and entrance fee to Marikina Gun and Country Club paid by his employer for his account; and travelling allowance of his wife.

Taxpayer claim that taxpayer-husband allowances for the rental and utilities did not receive the money but that they lived in the said apartment furnished and paid by his employer for its convenience.  As to the entrance fee to the Marikina Gun and Country Club paid by his employer and should not be considered as part of their income as with the wife-taxpayer travelling allowance.

ISSUE: WON the allowance for rental of the apartment furnished by the husband-taxpayers employer-corporation, including utilities and the allowance for travel expenses given by his employer-corporation to his wife in 1952 part of the taxable income?

HELD:
Bills for rentals and utilities were paid directly by the employer-corporation to the creditors.  CTA held that taxpayers are entitled only to ratable value of the allowance in question, and the reasonable amount they would have spend for house rentals and utilities such as light, water, telephone should be the amount subject to tax and the excess considered as expense of the corporation.

The taxpayer claim is supported by evidence.  Loberiza ( Head of Accounting department of the American Int'l underwriters...)  testified that rentals, utilities, water, phone, and electric bills of executive of the corporation were entered in the books of account as 'subsistence allowance and expenses; that there was a separate account for salaries and wages of employees.

The manager's residential expenses in 1948 should be treated as rentals for apartments and utilities and should not form part of the ratable value subject to tax.